TechnipFMC’s plans to spin off its engineering and construction business, which recently has thrived on a string of liquefied natural gas contracts, was hailed by analysts this week as making business sense.

However, it was also seen as a notable example of a service company, historically centred around the oil and gas industry, as positioning itself for the energy transition in a decarbonising world.

The deal would not seek to uncouple the 2017 merger between Technip and FMC Technologies that created the company based on an integrated subsea business model.

Rather, the company known for the moment as SpinCo would become a new and separate entity centred around the engineering and construction business that has recently posted major liquefied natural gas project wins such as Arctic LNG 2 and Mozambique LNG.

The company's combined subsea activities would persist in the other entity, known for now as RemainCo, where it would continue to grow that business and apply the model further to onshore field developments.

“The strategic rationale for this transaction is compelling and we strongly believe that providing independence for these two world-class, high-performing businesses will unlock further opportunities in value creation for all stakeholders,” chief executive Doug Pferdehirt said.

TechnipFMC said it anticipates both companies will be well-capitalised and attain investment grade ratings. The company aims to complete the transaction in the first half of 2020.

Markets liked the announcement — shares in New York jumped to about $24.71 by the close of trading on Tuesday following the deal announcement on Monday. Shares had closed at $23.10 on Friday.

Notably, analysts see the proposed companies as separate and independently viable businesses — each of which could draw investors not interested in the other. The deal could also open up opportunities for each respective company to add to its portfolio with related businesses.

For that reason, Tudor Pickering Holt analysts wrote in a note that they “couldn’t be bigger fans of this strategic move”.

“Our conversations with clients over the last couple years suggested that there was a subset of the investor community which was never going to be comfortable owning notable E&C exposure within their equity portfolios,” the bank said.

“As such, RemainCo - which will house subsea and surface technologies segments - will be an investable name for a broader universe of buy-siders, post-spin.”

Analysts at Redburn told clients that despite big income from the proposed SpinCo at present, it ultimately expects margins to level out at a lower level. Despite that, the segment is seen as having massive growth potential.

By contrast, the subsea-based RemainCo is seen as having higher margins near term but sees its long-term growth outlook “potentially more uncertain as oil demand comes under pressure from global efforts to reduce CO2 emissions”.

Norwegian consultancy Rystad Energy expects the subsea market to achieve a 10% annual average growth, and the EPC market to grow at 8% per annum over the next three years.

While synergies have emerged in recent years as a major buzz-word in driving mergers and acquisitions, executives seemed to acknowledge the limits of that model in their discussion with analysts.

While SpinCo and RemainCo would certainly have a close relationship and work together on a project when called for, ultimately management sees little overlap in the majority of operations.

There would be some reshuffling between existing divisions — loading systems, which specialises in cryogenic material transfer, would go with SpinCo, as would Cybernetix, a technology leader in process automation.

While the Genesis Oil & Gas front-end engineering and design unit would also go with SpinCo, engineers focused on subsea would stick with the Forsys Subsea unit at RemainCo, management said. The assets necessary for the company’s subsea business, including vessels, would also stay with RemainCo.

The deal also marks a step away from the industry push of recent years towards massive combinations.

McDermott’s recently closed deal to acquire CB&I is the structural opposite of TechnipFMC’s latest move, Rystad pointed out.

Multiple analysts also saw TechnipFMC as taking an early-mover step as an oilfield service player to adapt to business done in a lower-carbon world.

Global supermajors have been under increased shareholder pressure to account for how they plan to deal with global warming, and such environmental concerns are seen as weighing on energy stock valuations.

A comparable reckoning has not yet really reached the oilfield service sector, though TechnipFMC could mark a relevant first step.

“Essentially, the demerger is a proactive positioning move for a longer-term market shift,” wrote Wood Mackenzie principal analyst Mhairidh Evans. “It’s also is a deliberate sidestep away from the upstream cycle, towards the energy transition, which is notable coming from one of upstream oil and gas’ oilfield services’ giants.”

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TechnipFMC split is seen as ‘bold’ approach